Foreign Investment in Real Property Tax Act (FIRPTA)

Overview

The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted in 1980, initially as a response by Congress to concerns about increasing foreign ownership of farm land in the United States.  The major purpose of FIRPTA was to establish equity of tax treatment in U.S. real property between foreign and domestic investors. 

So far in the 116th Congress, one bill to repeal FIRPTA has been introduced in the House of Representatives that has attracted the support of many commercial real estate stakeholders in the country, as well as a high number of bipartisan cosponsors on the Ways and Means Committee.  Proponents of this bill, the "Invest in America Act"(H.R. 2210), believe it would increase the amount of foreign capital invested in real estate in the U.S.and also create jobs.

Political Advocacy

Current Legislation/Regulation (bill number or regulation)

H.R. 2210, Invest in America Act

In-Depth

Letters to Congress
Issue summary
NAR Federal Issues Tracker


Legislative Contact(s):

Evan Liddiard
eliddiard@nar.realtor
202-383-1083

Joe Harris
jharris@nar.realtor
202-383-1226

Regulatory Contact(s):

Evan Liddiard
eliddiard@nar.realtor
202-383-1083

What is the fundamental issue?

The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted in 1980, initially as a response by Congress to concerns about increasing foreign ownership of farm land in the United States. The major purpose of FIRPTA was to establish equity of tax treatment in U.S. real property between foreign and domestic investors.  

Before the enactment of FIRPTA, foreign investors were often able to avoid paying U.S. capital gains tax on gains when they sold U.S. assets, such as real estate, stocks, bonds, and U.S. Treasury securities.  

FIRPTA changed this for gains on real property held by foreign investors by requiring the buyer of such property to withhold a portion of the proceeds and remit it to the IRS as a proxy tax.  If the foreign investor owed less than the amount withheld, he or she could file a tax return and claim a refund for the difference. FIRPTA thus helped to level the tax playing field between U.S. and foreign investors

So far in the 116th Congress, one bill to repeal FIRPTA has been introduced in the House of Representatives that has attracted the support of many commercial real estate stakeholders in the country, as well as a high number of bipartisan cosponsors on the Ways and Means Committee. Proponents of this bill, the "Invest in America Act" (H.R. 2210), believe it would increase the amount of foreign capital invested in real estate in the U.S.and also create jobs.

FIRPTA repeal bills have not yet been introduced in the 116th Congress. 

I am a real estate professional. What does this mean for my business?

Some economists believe that FIRPTA has harmed the U.S. commercial real estate industry and held back economic growth. The United States trails other major industrial nations in the amount of commercial real estate investment from foreign sources. Moreover, the U.S. real estate sector enjoys just a fraction of the amount of foreign dollars invested into other parts of our economy, such as manufacturing and financial services. In a survey done in early 2014, three-quarters of foreign investors who responded indicated that FIRPTA relief or repeal would have a major or a positive effect on U.S. real estate investment activity.  Repeal of FIRPTA should increase investment in U.S. commercial real estate, which in turn could have positive growth effects on residential real estate as well.

NAR Policy:

NAR policy provides that "we believe all U.S. investors and foreign investors in U.S. real estate should be subject to similar sets of rules under the U.S. tax system." NAR is thus not supportive of repealing FIRPTA. However, NAR supports policies that improve reporting and disclosure requirements regarding foreign ownership of U.S. real estate by eliminating the compliance burden on buyers and placing it on sellers and/or their agents. 

Legislative/Regulatory Status/Outlook

The Invest in America Act enjoys strong bipartisan support by members of the House Ways and Means Committee. However, the outlook for this legislation becoming law before the end of 2020 is very cloudy. There is a great deal of partisan bickering in Congress over what, if any, tax bills should be considered, and it is unclear than any kind of legislative vehicle to carry a bill such as the Invest in America Act will come along before the end of the 116th Congress.

NAR Committee:

Federal Taxation Committee

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.


FIRPTA Basics  

Reporting and Paying Tax on U.S. Real Property Interests (Internal Revenue Service, Jan. 29, 2019)

ITIN Guidance for Foreign Property Buyers/Sellers (Internal Revenue Service, Aug. 2, 2018)

Complying with the Foreign Investment in Real Property Tax Act (FIRPTA) (National Association of REALTORS®, Apr. 12, 2016)

FIRPTA Withholding Rate Increasing to 15% (National Association of REALTORS®, Jan. 14, 2016)

FIRPTA Changes Primer - What They Mean For Buyers and Sellers and for Commercial Real Estate [WebEx] [PowerPoint] (National Association of REALTORS®)

Webinar: Changes to the Foreign Investment in Real Property Tax Act (FIRPTA) (National Association of REALTORS®)

Foreign Investment in Real Property Tax Act (FIRPTA) (Internal Revenue Service)

FIRPTA Withholding: Withholding of Tax on Dispositions of United States Real Property Interests (Internal Revenue Service)

Exceptions from FIRPTA Withholding (Internal Revenue Service)

The ABCs of FIRPTA (Commercial Observer)

Amended Rules Govern FIRPTA Dispositions (Journal of AccountancyE

Definitions of Terms and Procedures Unique to FIRPTA (Internal Revenue Service)

PATH Act of 2015  

PATH Act: Implications for FIRPTA, REIT Spin-offs, and Bonus Depreciation (Journal of Taxation of InvestmentsE

New FIRPTA Regulations Conform and Update Changes From the PATH Act (PricewaterhouseCoopers)

FIRPTA Changes Herald Increased Real Estate Investment Funding (National Real Estate Investor)

Six Ways the “Protecting Americans from Tax Hikes” Act Helps American Taxpayers (Committee on Ways and Means, U.S. House of Representatives)

More Details on the “Protecting Americans From Tax Hikes Act of 2015” (Committee on Ways and Means, U.S. House of Representatives)

The Twelve Most Important Provisions in the Latest Tax Bill (Tax Foundation)

11. New rules for real estate investment trusts are created (cost: $1.0 billion)

In recent years, it’s become increasingly common for companies to spin off their real estate assets into real estate investment trusts, to gain more favorable tax treatment. The PATH Act cracks down on this strategy, by imposing several limits on spinoffs involving real estate investment trusts (which are mostly similar to the ones I described last week).

Simultaneously, the PATH Act makes it easier for real estate investment trusts to attract foreign investments by relaxing some of the provisions of FIRPTA – a 1980s bill that imposed high taxes on foreign investment in U.S. real estate. Because there’s not much of a justification for the existence of FIRPTA (the law was born out of fears that foreign investors would buy up U.S. farm land), these provisions are positive changes to the tax code.

eBooks & Other Resources

Real Estate Topics

These Real Estate Topics may also be of interest:

1031 Exchanges

International Referrals

Working With International Clients

Foreign Investors


Have an idea for a real estate topic? Send us your suggestions.

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